Oil futures near $32 on supply anxiety

Oil supply falls, gas stocks rise; natgas prices inch up

SAN FRANCISCO (CBS.MW) -- Oil futures closed near $32 a barrel Thursday as a fall in last week's U.S. crude stocks and terrorist activity in the Middle East fed traders' anxiety over global oil supply levels.

"As the fallout from the attacks in Saudi Arabia and Iraq sinks in, the market is going to err on higher prices until the security situation in the Middle East improves," said Michael Armbruster, an analyst at Altavest Worldwide Trading.

December crude rose 57 cents to close at $31.90 per barrel on the New York Mercantile Exchange after falling to a low of $30.95 earlier in the session.

December heating oil also rose by 1.76 cents to close at 86.45 cents a gallon, but December unleaded gasoline closed at 86.91 cents a gallon, up 1.49 cents.

Early Thursday, the Energy Department reported crude stocks fell by 800,000 barrels for the week ended Nov. 7 to total inventories of 291.1 million barrels.

The American Petroleum Institute said supplies fell by 1.8 million barrels to total 290.4 million.

Market expectations for the data were mixed. John Kilduff, an analyst at Fimat USA, expected only a small decline in crude of 500,000 barrels for the week ended Nov. 7, while IFR Pegasus senior analyst Tim Evans had predicted stocks would be unchanged or rise by as much as 2 million barrels.

Both the Energy Department and API show "a declining trend in crude oil," said John Person, head financial analyst at Infinity Brokerage Services.

The decline came even though overall imports remained strong at an average of 9.9 million barrels per day for the week, according to the government's data.

With that in mind, "Americans should start to prepare and become accustomed to a new era for higher energy prices for the first half of 2004," Person said.

Gasoline stocks rise; distillate data mixed

Supplies of gasoline climbed last week, but overall stocks were still modestly below year-ago levels.

The data "does not show byproduct inventories increasing by any significant amount during a time period that should normally be experiencing increases," said Person.

Motor gasoline inventories climbed by 1 million to total 192.3 million barrels, according to the Energy Department, or 1.9 percent below the year-ago level. The API data revealed a 1.5 million-barrel rise to total 194.1 million.

Kilduff was on target with his expectation for a 1.5 million climb. Evans had predicted that stocks would remain the same or rise by as much as 1 million barrels.

Data on distillate supplies, which include heating oil, weren't quite as easy to decipher. The Energy Department posted a 1.5 million-barrel fall in those stocks, to total 131.2 million, but the API said supplies rose by 1.8 million barrels to 130.6 million.

Kilduff was looking for a 1 million-barrel climb in distillate supplies, while Evans expected stocks to be unchanged or rise by as much as 1 million barrels.

Middle East woes

Michael Armbruster, an analyst at Altavest Worldwide Trading, said the oil markets realize that last week's fall in crude stocks only adds to market concerns over supplies.

"As the fallout from the attacks in Saudi Arabia and Iraq sink in, the market is going to err on higher prices until the security situation in the Middle East improves," he said.

Grady Garrett, chief trading strategist at EnergyTrendAlert.com, a commodity information provider, pointed out that "U.S./Coalition is making progress against the terrorists, but traders need to realize that the Osama wing is also an enemy of the House of Saud.

"Traders will need to keep a close eye on events coming out of the kingdom before the holidays," he said.

Saturday's suicide car bombing in Saudi Arabia killed 17 people and Wednesday's truck bomb explosion at the headquarters of the Italian Carabinieri police in the southern Iraqi city of Nasiriyah killed 31 people. See CBS News for more.

Natural-gas prices follow crude

Natural-gas prices took their cue from strength in crude prices to end the session higher despite data from the Energy Department that revealed a climb in stocks last week.

On Nymex, December natural gas prices rose by 5.8 cent to close at $4.797 per million British thermal units.

U.S. natural gas stocks rose 32 billion cubic feet for the week ended Nov. 7, according to the Energy Department. A year ago, stocks fell by 48 billion.

The rise in stocks "tells us that, unless the weather turns bitter, gas stocks are adequate," said Altavest's Armbruster.

Natural gas supplies are up 3.9 percent based on the five-year average. "This is a good cushion for suppliers and better news for consumers," said Infinity's Person.

Total stocks are now at 3.187 trillion cubic feet, up 90 billion cubic feet from the year-ago level and up 121 billion cubic feet from the five-year average, the government data said.

Market estimates called for a climb of between 6 billion and 51 billion cubic feet, but Joshua Sadler, a vice president at Societe Generale was looking for a climb closer to 28 billion.

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